# After-Tax Cost of Debt Calculator

URL: https://speedycalculator.com/calculators/finance/after-tax-cost-of-debt/
Last updated: 2026-10-25

> The after-tax cost of debt calculator works out what a company's borrowing really costs after the tax deduction for interest, using the marginal tax rate implied by its net income and pre-tax income.

## Inputs

- Net income
- Pre-tax income
- Cost of debt (pre-tax) (%)

## Results

- Marginal corporate tax rate
- After-tax cost of debt
- Tax saving on the rate

## Formula

```
Tax rate = 1 − net income ÷ pre-tax income
After-tax cost of debt = pre-tax cost of debt × (1 − tax rate)
```

## Explanation

Because interest is deductible, each dollar of interest saves taxes, so debt costs less than its stated rate. The after-tax figure is what goes into the WACC.

### How to use the After-Tax Cost of Debt Calculator

- **Net income**
- **Pre-tax income**
- **Cost of debt (pre-tax)**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter net income and pre-tax income (or the tax rate directly) and the pre-tax cost of debt (the interest rate or yield on the company's debt).

### Tips

- Check whether rates are quoted annually, semi-annually or per period.
- Bond prices and yields move in opposite directions – a higher yield means a lower price.
- Use the bond's clean price (without accrued interest) for yield calculations.
- Credit ratios are most useful when tracked over several years.

### Common mistakes to avoid

- Confusing the coupon rate with the yield.
- Using the face value instead of the market price.
- Forgetting that callable bonds may be redeemed before maturity.

### Inputs explained

FieldWhat to enterNet incomeAmount in your currencyPre-tax incomeAmount in your currencyCost of debt (pre-tax)In %

### What each result means

- **Marginal corporate tax rate** = (1 - [Net income]÷[Pre-tax income])×100
- **After-tax cost of debt** = [Cost of debt (pre-tax)]×(1 - [Marginal corporate tax rate]÷100)
- **Tax saving on the rate** = [Cost of debt (pre-tax)]×[Marginal corporate tax rate]÷100

### Example values

How the main result changes when **Net income** changes and everything else stays at the example values above:

Net incomeAfter-tax cost of debt (%)395,0002.77592,5004.15790,0005.53987,5006.911,185,0008.31,580,00011.06

## Worked example

Inputs — Net income: $790,000; Pre-tax income: $1,000,000; Cost of debt (pre-tax): 7 %.

Results — Marginal corporate tax rate = 21 %; **After-tax cost of debt = 5.53 %**; Tax saving on the rate = 1.47 %.

## FAQ

**Why is the after-tax cost of debt lower?**
Interest is tax-deductible, so the government effectively pays part of it.

**What cost of debt should I use?**
The yield on the company's existing debt or the rate it would pay on new debt.

**Does this apply to individuals?**
Mortgage interest may be deductible if you itemize; most personal debt is not.

**What formula does the After-Tax Cost of Debt Calculator use?**
Tax rate = 1 − net income ÷ pre-tax income.


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)